Healthways shares plummet on new guidance

It was early 2008 all over again yesterday for Healthways investors, who saw their holdings drop more than 20 percent after the company lowered its quarterly guidance.

Shares of the Franklin-based disease management firm opened down about 20 percent and trickled down further to close at $19.73, their lowest level since the fall of 2003. Volume was very heavy, with 5.3 million shares trading hands – more than 12 times the usual activity.

In January and February of this year, Healthways shares fell from $70 to about $30 after the Centers for Medicare and Medicaid Services told the company its pilot program with the agency wasn't meeting its goals.

This time around, the culprit was a combination of contracts that are winding down or have been lost and costs associated with preparing new accounts coming online at the beginning of 2009.

As a result, the company said it now expects to earn between 34 cents and 37 cents per share in the coming quarter, well below the 46 cents analysts had been expecting. The company did, however, stick to its full-year guidance of per-share profits between $1.50 and $1.55 on revenue of about $730 million.

But that was no salve for investors. Jefferies & Co. analyst Arthur Henderson slashed his rating and price target for Healthways and told investors the current economic environment will hurt the company's ability to stay on executives' radar screens.

"Should management opt to reduce prices to compete more effectively, it will likely be at the expense of margins and earnings," Henderson said.